Question text

Calculating Depletion, Depreciation, and Ending Inventory

Aerial Company acquired land containing natural resources that it planned to extract for $2.5 million on January 1, 2020. The amount allocated to the land is $100,000. Surveys estimate that the recoverable reserves will total 2 million tons. The company paid an additional $200,000 for development to prepare for the extraction of the resources. The company also incurred $100,000 to build roads with a useful life of 8 years. The roads will not be used for other projects. The company is obligated to restore the site after the extraction of resources. The present value of this obligation is $25,000. 240,000 tons of natural resources were extracted in 2020 and 225,000 tons were sold in 2020.

Required

a. Determine depletion for the natural resource in 2020. Note: Round depletion rates to two decimals used in your calculations. $Answer

b. Assuming that the company depreciates the cost of roads using units-of-production, determine depreciation expense for 2020. Note: Do not round until your final answer. Round your final answer to the nearest dollar. $Answer

c. Compute cost of goods sold for 2020, and ending inventory on December 31, 2020. Note: Round depletion rates to two decimals used in your calculations. Cost of goods sold $Answer Ending inventory $Answer

Calculating Depletion, Depreciation, and Ending Inventory Aerial Company acquired land containing natural resources that it planned to extract for $2.5 million on January 1, 2020. The amount allocated to the land is $100,000. Surveys estimate that the recoverable reserves will total 2 million tons. The company paid an additional $200,000 for development to prepare for the extraction of the resources. The company also incurred $100,000 to build roads with a useful life of 8 years. The roads will not be used for other projects. The company is obligated to restore the site after the extraction of resources. The present value of this obligation is $25,000.240,000 tons of natural resources were extracted in 2020 and 225,000 tons were sold in 2020. Required a. Determine depletion for the natural resource in 2020. Note: Round depletion rates to two decimals used in your calculations. $ b. Assuming that the company depreciates the cost of roads using units-of-production, determine depreciation expense for 2020. Note: Do not round until your final answer. Round your final answer to the nearest dollar. $ c. Compute cost of goods sold for 2020, and ending inventory on December 31, 2020. Note: Round depletion rates to two decimals used in your calculations. Cost of goods sold $ Ending inventory